• $140
million cash distribution from investment in GeoGlobal
Energy (GGE) partially offset by $89 million accounting
impairment principally related to investments in Chile and
Germany

• Underlying Earnings up 31% ($32
million) on the previous year as a result of gains in market
share and higher hydro volumes

• Declared
interim dividend of $67 million reflecting the Company’s
new dividend policy

Mighty River Power today reported an
increase in Net Profit after Tax by $58 million to $75
million, which demonstrated improved operational
performance, mixed results from the Company’s investment
in the GeoGlobal Partners I Fund (GGE Fund), and lower
non-cash fair value movements.

Chair of Mighty River
Power, Joan Withers, said the Company had also increased
Underlying Earnings by $32 million on the prior comparable
period (pcp) to $133 million. This follows a steady growth
in underlying earnings over the past three years. The
Company’s improved operational performance reflected
market share gains and increased hydro volumes.

“The
Board of Directors is pleased to declare an interim dividend
of $67 million in line with the Company’s new dividend
policy and reflecting the new weightings² of the interim
and final dividend payments,” said Mrs
Withers.

Financial Results

EBITDAF³
increased by $6 million to $260 million (2012: $254
million), as a result of market share gains achieved in
electricity sales to customers and higher hydro generation.

The financial results from the Company’s investment in
the GGE Fund were mixed. During the period, Mighty River
Power received its first cash distribution of $140 million
from the GGE Fund. Returns from GGE had a $57 million
favourable impact on Net Profit after Tax, after accounting
for a foreign exchange loss reflecting the significant
exchange rate appreciation since the original
investment.

However, the Company also recognised an $89
million non-cash accounting impairment relating to the GGE
Fund’s investments and its management company. This
reflected higher estimated costs than anticipated by GGE,
the Manager at the Tolhuaca project in Southern Chile,
following the worst winter in 40 years badly affecting
drilling, and only one of the two wells having good
production capacity. In Germany, delays in progressing
Weilheim due to environment court challenges (now resolved)
contributed to the impairment, along with the need to
relocate the proposed drilling location following assessment
of the results of 3D seismic testing.

Mighty River
Power’s Chief Executive, Doug Heffernan, said, “It was
pleasing to see the first demonstration of financial success
of our international geothermal strategy with a cash return
consistent with our business case and providing a good
return on the original invested capital. However, we felt
it was prudent to recognise accounting non-cash impairments
on the value of GeoGlobal Energy and its greenfield
developments located in Chile and Germany,” said Mr
Heffernan.

A further factor influencing the impairment was
that as at the end of the year, GGE had not raised third
party capital in the Fund as originally planned, and Mighty
River Power declined the opportunity to invest further
capital into the existing structure. This lack of
development capital available to GGE, coupled with the above
factors, led to a full review of Mighty River Power’s
investment in the assets of the GGE Fund.

Overall reported
Net Profit after Tax (NPAT) increased $58 million on the pcp
due to the improvement in operational performance, the mixed
results from GeoGlobal Energy, and a lower level of fair
value losses recognised on financial
instruments.

Operating
Performance

Mighty River Power achieved a solid
operating performance as the Company continued to achieve
gains in market share in electricity sales to customers and
benefited from higher hydro volumes. During the half year,
Mighty River Power’s electricity price to customers
increased 2% to $115.32/MWh and associated volumes increased
by 9% to 2,777GWh as the Company secured more business
customers well ahead of the commissioning of the 82MW
Ngatamariki geothermal power station.

Overall generation increased by 36GWh
due to higher hydro generation and the strong reliability
(96%) across the Company’s geothermal plants (partly
offset by the sale of 10% interest in Nga Awa Purua in April
2012). Gas-fired generation at the Southdown plant in
Auckland fell by 130GWh on the pcp as the Company responded
to pricing in the wholesale market.

Hydro generation
increased by 210GWh on the pcp as a result of higher inflows
than average in the first quarter of the financial year. The
price received for the Company’s generation outperformed
the market over the period reflecting the ability to
effectively utilise storage and flexible plant to respond to
wholesale prices, and the decision to move the planned
outage of Southdown to ensure availability at a time when
national electricity supply was impacted by a number of
thermal and transmission outages.

Domestic
Development

Construction of the 82MW Ngatamariki
geothermal power station progressed and the plant remains on
track for commissioning in mid 2013, with first power to the
grid expected in early March.

“We’re looking forward
to the plant coming on stream over the next few months,
which will increase the Company’s base-load geothermal
generation to around 40% of total production, providing a
contribution to earnings in FY2014 and further improving the
stability of the Company’s financial performance,” said
Mr Heffernan.

Funding & Debt Maturities

As at 31 December 2012, the Company had total
debt facilities of $1,460 million (31 December 2011: $1,360
million), with $450 million of un-drawn bank facilities. The
next maturity is a $200 million retail bond in May 2013,
which can be can be fully funded with existing facilities.
The average maturity for the debt facilities portfolio is
4.8 years; however, the Company has recently initiated a
refinancing programme to increase the average maturity
profile.

In October 2012, Standard & Poor’s reaffirmed
Mighty River Power’s long-term credit rating of BBB+ with
a Stable outlook.

Performance since balance date

During January, inflows into competitor’s
South Island reservoirs were strong, leading to South Island
storage rising to a peak of 150% of average. Since January,
South Island storage has reduced to 106% of average and 48%
ahead of the previous year. This improvement in South
Island hydrology has led to wholesale market prices falling
from the highs of a year ago.

Following the Company’s
high level of hydro generation in the first half of the
financial year and lower than average inflows into the
Waikato catchment during the last quarter, Mighty River
Power ended the half year with storage at 69% of the
historical average (since 1999). Since 31 December 2012,
inflows have been significantly lower than average and
storage is currently at 217GWh, compared to 359GWh the same
time last year and the historical average (since 1999) of
377GWh.

International Geothermal and Restructure
Agreement

As announced on 15 February 2013,
Mighty River Power reached an agreement with the Managing
Partners of GeoGlobal Energy (GGE) LLC to take direct
control of geothermal interests in Chile and US-based
EnergySource.

Mr Heffernan said Mighty River Power’s
strong New Zealand geothermal operating business and long
term strategic horizons can better leverage our capabilities
for developments in Chile and we see a lot of potential
synergies between our business and EnergySource as an
operator and developer of a large brownfield geothermal
reservoir in the US.

The Company’s priority in Chile was
to develop a strategic plan for the business, utilising the
knowledge of the staff in Chile, and the experience we have
gained through the GGE relationship, and from the experience
gained over the past decade developing a significant
geothermal business in New Zealand.

“Mighty River Power
will maintain a measured and prudent approach to
international development opportunities, and any related
capital commitments.” Mr Heffernan said.

--

Notes

¹ Click here for a full market disclosure
including Financial Commentary, Audited Financial Statements
and Presentation.

² In November 2012, Mighty
River Power announced a new dividend policy that targets
paying out an interim dividend representing 40% of total
forecasted dividend.

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